Dynamic Panels, Cross Sectional Correlation, and Arbitrage in Equities Market

43 Pages Posted: 7 Dec 2012 Last revised: 30 Apr 2018

See all articles by Xiao Huang

Xiao Huang

Kennesaw State University

Date Written: April 15, 2016

Abstract

This paper studies estimation in linear dynamic panel data models with multiple interactive effects when both N and T are large. We derive the bias term in an order p dynamic panel data model and the limiting distribution of the estimator. Simulation results show good finite sample properties of the estimator. An application to arbitrage in the U.S. equities market between 2000 and 2015 shows dynamic panel data model is an effective method to produce effective trading strategies.

Keywords: arbitrage, cross sectional correlation, dynamic panel, interactive fixed effects

JEL Classification: C13

Suggested Citation

Huang, Xiao, Dynamic Panels, Cross Sectional Correlation, and Arbitrage in Equities Market (April 15, 2016). Available at SSRN: https://ssrn.com/abstract=2186066 or http://dx.doi.org/10.2139/ssrn.2186066

Xiao Huang (Contact Author)

Kennesaw State University ( email )

560 Parliament Garden Way
Kennesaw, GA 30144
United States
(470) 578-6318 (Phone)
(470) 578-9022 (Fax)

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